BT set to blow competition out of the water

Oriel has placed a target price of 475p on telecoms behemoth BT (BT.L) but predicted that the shares could soar much higher as the company wins back more of the market.

Analyst John Karidis said: ‘Our BT target is 475p, but we can see our way to greater than 600p per share.’

He added that there would be ‘little risk of an arms race’ for content rights when it came to TV programming as BT had 2.5 times the cash flow of competitor BskyB.

Away from the consumer side, BT is set to benefit from economic recovery, ‘improving execution’ and a new 4G spectrum ‘to outclass many of its rivals’, said Karidis.

He also expected BT’s pension liabilities to be less of a burden and ‘the next triennial pension valuation (14 June) should not need to keep a ‘prudence margin’ of £6 billion+ (included in the June 2011 valuation).’

BT shares closed up 0.37%, or 1.4p, on Monday at 384p.

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Dixons aspires to join the ‘dividend club’

Electrical retailer Dixons (DXNS.L) will be given a boost in 2014 from downsizing stores, collaborations and even the World Cup.

Alistair Davies, Oriel analyst, said he had high expectations that Dixons’ management ‘can continue the recovery story within the UK and manage investment headwinds within Northern Europe’.

He noted the downsizing to 400 stores, collaborations with suppliers for fit-outs and staff training, World Cup buzz and increasing purchase of white goods as more people purchase their own home would help the company improve earnings.

Over the period to the end of 2016, Davies expects Dixons to increase earnings by 6% more than earlier forecasted as well as pay £100 million of bonds due in 2015.

A dividend could be forthcoming too after a five year hiatus.

‘Expectations are for returns to shareholders to begin in H2 FY 15 with management keen to emphasise a focus on returns for equity holders and stating that the dividend list is a ‘club they would like to be a part of’,’ he said.

Dixons shares closed 0.7%, or 0.35p, on Monday at 50.3p.

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Larger garments are big business for N Brown Group

Internet and catalogue retailer N Brown Group (BWNG.L) is taking advantage of its position as seller of larger garments for men and women.

The owner of Simply Be, Jacamo and Figleaves, is ‘evolving rapidly’ according to analyst Jonathan Pritchard.

‘Over the past 18 months, customer recruitment has been very strong, due to better targeting on the web, stronger advertising in general, and a controlled and small easing of credit terms,’ said Pritchard. ‘This has a short term dilutive impact on margins but shoppers quickly become highly profitable, moving their credit balances from £100 to an average of £380 within three years.’

Pritchard also praised the new chief executive Angela Spindle as ‘an experienced clothing retailer’ who ‘will improve the ranging, sourcing and merchandising of the product’.

Although he mentioned that Christmas had been tough for all clothing retailers ‘N Brown is especially well placed not only to weather this short term storm, but to grow earnings rapidly in the medium term as well’.

N Brown Group shares closed down 1.79%, or 10p, on Monday at 550p.

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Regus keeps it simple

Office rental company Regus (RGU.L) may ‘screen poorly’ due to its simple business model but Oriel expects the company to gain from investment in new sites this year.

Analyst Hector Forsythe said investment costs pass through Regus’ profit and loss accounts meaning ’accelerating growth weakens near-term profitability’ and the company ’screens poorly’ but added that ‘it is value creation that matters’.

‘This is a group that has a single core business – the provision of flexible office space – operating from over 1,700 centres,’ he said. ‘We calculate that a new location brings net present value of £0.7 million. We expect over 300 to be added this year. And we estimate that on average each existing location has a net present value of £0.9 million.’

Given these assumption he has a 300p target price for the shares, but lower capital costs could push the price to 400p.

Regus shares closed up 0.45%, or 1p, on Monday at 222p.

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Better economy and new regulation boost St James’s Place

Oriel’s key life assurance pick is wealth management firm St James’s Place (STJ.L), which it marks out for the strongest dividend growth in the sector.

Marcus Barnard said: ‘St James’s Place remains our key pick in among the life assurers, combining high growth, strong profitability and increasing cash conversion, combining to give the strongest dividend growth (50%) in the sector.’

He expects to see increased recruitment in its tied salesforce and productivity to be boosted by rising equity markets, low savings rates and an improving economy.

St James’s has also benefited from new ‘retail distribution review’ (RDR) rules which have seen a decrease in a number of independent financial advisers meaning the firm’s tied ‘partners’ are finding it easy to get clients.

‘The company expects to see a 15-20% growth in new business, which along with modest equity market progression should see group assets under management increase at 15% a year and double over the next five years,’ said Barnard.

He predicted the shares will reach 800p.

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Good start for Thomas Cook, more to follow

Holiday company Thomas Cook (TCG.L) has already benefitted from new management and a cost reduction plan but analyst Jeffery Harwood still thinks ‘there is further upside to come’.

Harwood has placed a target price of 197p on the shares.

‘There is clearly good upside from the initial cost reduction programme where a further £246 million of improvements are planned over the next two years,’ he said. ‘In addition we expect the second stage cost reduction/ profit improvement programme to be unveiled in May, likely to be around £440 million.’

Harwood noted that shares rose strongly in 2012 and the ‘risk profile’ of the business changed after its £400 million share issue last year. The aim is to ‘move into a zero net debt position by September 2015’.

Thomas Cook shares closed down 1.04%, or 1.9p, on Monday at 180p.

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Northgate steps up a gear in 2014

Vehicle rental firm Northgate (NTG.L) will benefit not only from an increase in self-drive vans but also from ‘cyclical growth’ in the market.

Analyst Hector Forsythe expects Northgate to expand 10% for ‘each of the next few years’ as it finally benefits from investment in sales and a reorganisation.

‘[Northgate is] at the confluence of self-help organic growth and cyclical growth,’ he said. ‘Fundamentally, van rental demand is a play on economic activity. Northgate is delivering accretive growth in the UK from network expansion, in the order of 10% for each of the next few years, and starting to show a return on investment in sales and internal reorganisation.’

He added that ‘returns have the opportunity to exceed expectations’.

Northgate shares closed up 1%, or 6p, on Monday at 569p.

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